Market is likely to remain bearish

The bear carnage cost Nifty 1498.3 points or 12.74 per cent from life time highs. As we cautioned earlier in this column, the fall is due to many macro headwinds coupled with technical reasons. The severity of the fall has forced many retail investors to get out of the market with losses.

Even blue-chip shares fell sharply because of the sell-off.   Many stocks in Nifty are trading below 200DMA which reflects the market weakness.  Midcap and small-cap indices are the worst performers. They reached February 2017 levels.  

As many as 22 stocks in Mid cap-100 index fell more than 50 per cent from their 52-week highs. The Midcap-100 index fell only 25.77 per cent from 52-week highs or lifetime highs. But the stocks in Midcap-100 index fell 36.75 per cent on average.

The Small Cap100 index fell 39.08 per cent since Jan 2018 i.e., 38 weeks but an average fall in these stocks is 46.94 per cent. These stocks are best performers in 2017 bull market and the worst in current bear attack. Even after this steep fall, we can’t say that markets have bottomed out. 

Apart from the rising crude oil prices, falling rupee, widening Cad and recent policy decisions, the changed RBI policy stance from neutral to calibrated tightening dampened the market sentiments further.

Generally, no change in policy rates is positive for markets. But Friday's RBI commentary on falling rupee created havoc in the market. As consequence, Nifty shed 80 per cent of the previous rally which took the index from 9952 to 11760 points. 

Technically, Nifty decisively slipped below many crucial supports and closed below 200 DMA which is a long-term indicator. The index also breached the weekly upward channel support and near the very long-term channel at 10225. After large bear candles in the last three weeks, the market will try to consolidate for a small period.

Therefore, investors can expect a counter-trend rally, which we may witness in next week. On the monthly chart, the leading RSI has also broken the crucial 40 zones and near to the oversold zone. So, before going further down, it may try to fill the gaps of the last two days. Expect some short covering bounce to 10615, which fills the Friday gap.

If it is able sustains this level, it may go up to the level 10, 835 on very optimistic note. On a downside, there is very strong support zone around 10200-10,225 level. It is not a wise decision to go for selling at the current level. However, the market will remain volatile for next three months. 
– Hans Research Team